Bankruptcy Costs Weighing on AMR’s Profits

Senior Editor

As lawyers scramble to save AMR Corp’s merger with US Airways Group Inc, American Airlines’ parent is bleeding more than $15 million a month in restructuring charges. The costs could continue to weigh on the carrier’s results as it waits to see how judges rule on its planned merger with US Airways.

Associated Press

AMR Corp. on Monday reported monthly income for July, which almost equaled its take for the entire second-quarter. However, the company also reported $57 million in restructuring costs, including attorneys fees. Those charges pushed the income down to $292 million from $349 million.

The strong July numbers suggest that American isn’t dependent on the merger to survive. The entire industry has been buoyed recently by falling fuel prices and higher travel demand. That helped all of the major airlines report strong second-quarter results this year.

By contrast, in the entire second quarter American made $357 million. It spent $124 million of that, or 35%, on restructuring.

The company said Monday it expects to continue to report “at least” another $15 million a month in such charges as it languishes in Chapter 11 bankruptcy protection, based on assuming that it will pay fees of $500,000 a day.

“They will continue to impact the business as long as we are in chapter 11,” said a company representative.

American must stay in bankruptcy until the case is resolved in court. American wants a trial as early as November, but the Justice Department is pushing for a trial in February. That could amount to another $60 million to $90 million in restructuring-related charges.

Nearly across the board, mid-market executives are hiring new employees, buying new technology solutions, acquiring businesses to reach new markets and preparing IPOs, according to a Deloitte survey of more than 500 mid-market executives. But companies are running up against a number of constraints as they seek to expand, particularly in acquiring and retaining skilled talent.